Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank Millennium SA (WAR:MIL, Financial) achieved a net profit of PLN357 million in the first half of 2024, maintaining the same level as the previous year.
- The bank reported strong net interest income (NII) growth, excluding the impact of credit holidays, with a 5% year-on-year increase.
- The cost-to-income ratio was adjusted to 31%, indicating high efficiency in operations.
- The bank successfully exited its recovery plan and returned to paying the banking tax, reflecting improved financial stability.
- There was significant growth in deposits, consumer loans, and investment funds, showcasing strong business performance.
Negative Points
- The bank faced costs related to credit holidays and the FX mortgage portfolio, which impacted profitability.
- Operating costs grew by 14% in the first half of the year, driven by a 16% increase in staff costs and a 12% rise in other administrative costs.
- The bank's net fee and commission income decreased by 3% year-on-year, primarily due to lower fees from the insurance business.
- There was a drop in the capital ratios in the second quarter, although they remained above regulatory requirements.
- The bank continues to face legal risks and provisions related to FX mortgages, with significant provisioning efforts expected to continue.
Q & A Highlights
Q: Can you explain the dynamics of EBITDA and expectations for the second half of the year?
A: Fernando Bicho, Deputy Chairman of the Management Board & CFO, explained that the EBITDA dynamics are influenced by adjustments related to FX-mortgage loans assumed to be invalidated. The DTA value will fluctuate based on FX rates, court case inflows, and settlements. The second quarter saw additional DTA impacts from credit holidays, which will expire by year-end. The DTA increase affects capital through risk-weighted assets growth and Tier 1 capital deductions, expected to be resolved by March next year.
Q: What is the outlook for the long-term funding ratio?
A: Fernando Bicho stated that a new ratio will be enforced by December 2026, requiring mortgage loans to be covered by long-term funding or excess capital. Bank Millennium has a mortgage bank capable of issuing covered bonds, which will help meet this requirement. The Swiss francs portfolio will be zero by 2026, reducing the need for long-term funding.
Q: Is the current performance of the insurance business a new run rate?
A: Fernando Bicho confirmed that the current level should be considered the run rate. The bancassurance transaction last year and new recommendations from authorities have impacted profitability.
Q: What are the prospects for deposit pricing in a flat interest environment?
A: Fernando Bicho noted that deposit pricing is influenced by various factors, including current accounts and corporate versus retail deposits. There is potential to reduce the cost of time deposits, and the bank is focusing on growing volumes with proper price management to maintain solid net interest income.
Q: What is the growth outlook for SME, NPL, and mortgages?
A: Fernando Bicho mentioned that the bank aims to maintain or slightly reduce mortgage volume, focusing on SME development. The bank has strong credit capabilities and expects visible corporate portfolio growth in the second half of the year.
Q: Are dividends from 2025 profits realistic, and what is a comfortable Tier 1 level?
A: Fernando Bicho stated that dividends for next year are not planned, but the bank aims to return to dividend distribution in the next cycle. A Tier 1 ratio of at least 14% to 15% is expected, with the first half results potentially increasing it to 15.6%.
Q: What is the interest rate sensitivity and share of fixed-rate mortgages?
A: Fernando Bicho explained that all new mortgages have a temporary fixed rate for five years, with the share of fixed-rate mortgages nearing 30%. Consumer loans are entirely fixed-rate. The bank has a natural hedge between loans and deposits and is protecting against expected interest rate decreases.
Q: What is the outlook for FX-mortgage provisions?
A: Joao Bras Jorge, Chairman of the Management Board, stated that FX-mortgage provisioning will remain significant this year but should decrease next year if no new factors arise. The bank continues to seek amicable settlements with customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
